Show calculation please Church Inc. is presently enjoying relatively ... Church
ID: 2624681 • Letter: S
Question
Show calculation please
Church Inc. is presently enjoying relatively ... Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 40% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company's last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?Explanation / Answer
Cost of Equity = 3 +5.5*1.20 = 9.60%
Price of common Stock = 1.25*1.40/1.096 + 1.25*1.40^2/1.096^2 + 1.25*1.40^3/1.096^3 + 1.25*1.40^4/1.096^4 + (1.25*1.40^4/0.096)/1.096^4
Price of common Stock = $ 44.24
Answer:
e) $ 44.24